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Testing the Marshall-Lerner condition for Romania

Author

Listed:
  • Ecaterina TOMOIAGA

    (Babes-Bolyai University, Cluj-Napoca, Romania)

  • Monica Ioana POP SILAGHI

    (Babes-Bolyai University, Cluj-Napoca, Romania)

Abstract

In this paper, we test if a depreciation of a national currency will lead to an improvement of the trade balance. We chose the bilateral relationship of Romania and its ten main trading partners. This study will fill the gap in the Romanian literature on this topic in two ways. Firstly, by using a larger data set than it is used in previous studies. The data set consists of panel data for the period 1999-2019. Secondly, by applying a Fully Modified Ordinary Least Square model we test the long-run relationship between the real exchange rate and trade balance. Through the analysis carried out, we obtained the result that a depreciation of the RON will lead to an improvement in the Romanian trade balance.

Suggested Citation

  • Ecaterina TOMOIAGA & Monica Ioana POP SILAGHI, 2022. "Testing the Marshall-Lerner condition for Romania," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(630), S), pages 39-48, Spring.
    • Handle: RePEc:agr:journl:v:1(630):y:2022:i:1(630):p:39-48
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    References listed on IDEAS

    as
    1. Esmaeil Ebadi, 2020. "Comparison of the Marshall-Lerner condition in OECD and Asian countries: new evidence from pooled mean group estimation," Economics Bulletin, AccessEcon, vol. 40(2), pages 1332-1348.
    2. Irandoust, Manuchehr & Ekblad, Kristin & Parmler, Johan, 2006. "Bilateral trade flows and exchange rate sensitivity: Evidence from likelihood-based panel cointegration," Economic Systems, Elsevier, vol. 30(2), pages 170-183, June.
    3. Chiu, Yi-Bin & Lee, Chien-Chiang & Sun, Chia-Hung, 2010. "The U.S. trade imbalance and real exchange rate: An application of the heterogeneous panel cointegration method," Economic Modelling, Elsevier, vol. 27(3), pages 705-716, May.
    4. Cheng, Ka Ming, 2020. "Currency devaluation and trade balance: Evidence from the US services trade," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 20-37.
    5. Safet Kurtovic & Blerim Halili & Nehat Maxhuni, 2017. "Bilateral Trade Elasticity of Serbia: Is There a J-Curve Effect?," PSL Quarterly Review, Economia civile, vol. 70(281), pages 185-210.
    6. Natalya Ketenci & Idil Uz, 2011. "Bilateral and regional trade elasticities of the EU," Empirical Economics, Springer, vol. 40(3), pages 839-854, May.
    7. Mohsen Bahmani-Oskooee & Ali Kutan, 2009. "The J-curve in the emerging economies of Eastern Europe," Applied Economics, Taylor & Francis Journals, vol. 41(20), pages 2523-2532.
    8. Rustam Jamilov, 2013. "J-Curve Dynamics and the Marshall–Lerner Condition: Evidence from Azerbaijan," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 19(3), pages 313-323, February.
    9. M. Ege Yazgan & Serda Selin Ozturk, 2019. "Real Exchange Rates and the Balance of Trade: Does the J-curve Effect Really Hold?," Open Economies Review, Springer, vol. 30(2), pages 343-373, April.
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